Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Management’s discussion and analysis of financial condition of the Richmond Mutual Bancorporation, Inc. (the “Company”) at March 31, 2024, and the consolidated results of operations for the three month period ended March 31, 2024, compared to the same period in 2023, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Form 10-Q. The terms “we,” “our,” “us,” or the “Company” refer to Richmond Mutual Bancorporation, Inc. and its consolidated direct and indirect subsidiaries, including First Bank Richmond, which we sometimes refer to as the “Bank,” unless the context otherwise requires. Cautionary Note Regarding Forward-Looking Statements Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to: • statements of our goals, intentions and expectations; • statements regarding our business plans, prospects, growth and operating strategies; • statements regarding the quality of our loan and investment portfolios; and • estimates of our risks and future costs and benefits. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Important factors that could cause our actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: • potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession, or slowed economic growth; • changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; • the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; • the effects of any federal government shutdown; • general economic conditions, either nationally or in our market areas, that are worse than expected; 27 • changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; • our ability to access cost-effective funding including maintaining the confidence of depositors; • unexpected outflows of uninsured deposits may require us to sell investment securities at a loss; • fluctuations in real estate values, and residential, commercial, and multi-family real estate market conditions; • demand for loans and deposits in our market area; • our ability to implement and change our business strategies; • competition among depository and other financial institutions and equipment financing companies; • the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; • inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make; • adverse changes in the securities or secondary mortgage markets; • changes in the quality or composition of our loan, lease or investment portfolios; • our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on the third-party vendors who perform several of our critical processing functions; • the inability of third-party providers to perform as expected; • our ability to manage market risk, credit risk and operational risk in the current economic environment; • our ability to enter new markets successfully and capitalize on growth opportunities; • our ability to attract and retain key employees; • our compensation expense associated with equity allocated or awarded to our employees; • changes in the financial condition, results of operations or future prospects of issuers of securities that we own; • our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto; • changes in consumer spending, borrowing and savings habits; • changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission ("SEC") or the Public Company Accounting Oversight Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; • legislative or regulatory changes such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations that may adversely affect our business, and the availability of resources to address such changes; 28 • our ability to pay dividends on our common stock; • other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services; • the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest, and other external events on our business; and • the other risks detailed in this report and from time to time in our other filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements. Overview The Company, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, First Bank Richmond. Substantially all of the Company's business is conducted through First Bank Richmond. The Company is regulated by the Federal Reserve and the Indiana Department of Financial Institutions ("IDFI"). The Company's corporate office is located at 31 North 9th Street, Richmond, Indiana, and its telephone number is (765) 962-2581. First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The Bank was originally established in 1887 as an Indiana state-chartered mutual savings and loan association and in 1935 converted to a federal mutual savings and loan association, operating under the name First Federal Savings and Loan Association of Richmond. In 1993, the Bank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the Bank, in connection with its non-stock mutual holding company reorganization, converted to a national bank charter operating as First Bank Richmond, National Association. In July 2007, Richmond Mutual Bancorporation-Delaware, the Bank’s then current holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio. Mutual Federal Savings Bank was operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when it was combined with the bank through an internal merger transaction that consolidated both banks into a single, more efficient commercial bank charter. In 2017, the Bank converted to an Indiana state-chartered commercial bank and changed its name to First Bank Richmond. The former Mutual Federal Savings Bank continues to operate in Ohio under the name Mutual Federal, a division of First Bank Richmond. First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full-service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond’s Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the IDFI and the Federal Deposit Insurance Corporation (“FDIC”). Our principal business consists of attracting deposits from the general public, as well as brokered deposits, and investing those funds primarily in loans secured by commercial and multi-family real estate, first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases and commercial and industrial loans. We also obtain funds by utilizing Federal Home Loan Bank (“FHLB”) advances. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities and government sponsored agency and municipal bonds. First Bank Richmond generates commercial, mortgage and consumer loans and leases and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana and Shelby, Miami and Franklin (no deposits) Counties, in Ohio. We sometimes refer to these counties as our primary market area. First Bank Richmond’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Our leasing operation consists of direct investments in equipment that we lease (referred to as direct finance leases) to small businesses located throughout the United States. Our lease portfolio consists of various kinds of equipment, generally technology-related, such as computer systems, medical equipment and general manufacturing, industrial, construction and transportation equipment. We seek leasing 29 transactions where we believe the equipment leased is integral to the lessee's business. We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of employee benefits, and manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $180.2 million at March 31, 2024. Our results of operations are primarily dependent on net interest income. Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees), and fees from sale of residential mortgage loans originated for sale in the secondary market. We also recognize income from the sale of investment securities. Changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. At March 31, 2024, on a consolidated basis, we had $1.5 billion in assets, $1.1 billion in loans and leases, net of allowance, $1.1 billion in deposits and $132.4 million in stockholders’ equity. At March 31, 2024, First Bank Richmond’s total risk-based capital ratio was 14.1%, exceeding the 10.0% requirement for a well-capitalized institution. For the three months ended March 31, 2024, net income was $2.4 million, compared with net income of $2.9 million for the three months ended March 31, 2023. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors. There have been no significant changes during the three months ended March 31, 2024 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K. See "Critical Accounting Estimates" included in Part II, Item 7 of our 2023 Form 10-K for a further discussion of our Critical Accounting Estimates. Comparison of Financial Condition at March 31, 2024 and December 31, 2023 General. Total assets increased $26.6 million, or 1.8%, to $1.5 billion at March 31, 2024 from December 31, 2023. The increase was primarily the result of a $33.1 million, or 3.0%, increase in loans and leases, net of allowance for credit losses, to $1.1 billion, partially offset by a $6.6 million, or 2.3%, decrease in investment securities to $281.0 million at March 31, 2024. Investment Securities. Investment securities available for sale totaled $276.3 million and $282.7 million, while investment securities held to maturity totaled $4.7 million and $4.9 million at March 31, 2024 and December 31, 2023, respectively. The $6.3 million or 2.2% decrease in investment securities available for sale was primarily due to maturities and principal repayments of $4.4 million and a $3.6 million downward mark-to-market adjustment on the investment portfolio. The decrease in investment securities held to maturity was the result of scheduled principal repayments and maturities. Loans and Leases. Loans and leases, net of allowance for credit losses on loans and leases, increased $33.1 million, or 3.0%, to $1.1 billion at March 31, 2024 from December 31, 2023. The increase in loans and leases was attributable to an increase in multi-family loans, residential mortgage loans, and commercial and industrial loans of $15.0 million, $8.9 million and $8.2 million, respectively. At March 31, 2024, loans held for sale totaled $85,000, compared to $794,000 at December 31, 2023. Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases 90 days or more past due, totaled $6.9 million, or 0.61% of total loans and leases at March 31, 2024, compared to $8.0 million or 0.72% of 30 total loans and leases at December 31, 2023. Accruing loans and leases past due 90 days or more totaled $1.9 million at March 31, 2024, compared to $1.7 million at December 31, 2023. Allowance for Credit Losses. The allowance for credit losses on loans and leases increased $162,000, or 1.0%, to $15.8 million at March 31, 2024 from December 31, 2023. At March 31, 2024, the allowance for credit losses on loans and leases totaled 1.39% of total loans and leases outstanding. At December 31, 2023, the allowance for credit losses on loans and leases totaled $15.7 million, or 1.42% of total loans and leases outstanding. Net charge-offs during the first quarter of 2024 were $324,000 compared to net recoveries of $78,000 during the comparable quarter of 2023. Management regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio. The Company evaluated its exposure to potential loan and lease losses as of March 31, 2024, which evaluation included consideration of a potential recession due to inflation, stock market volatility, and overall geopolitical tensions. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis. For additional information on the allowance for credit losses, see "Allowance for Credit Losses on Loans and Leases" and "Economic Outlook" in "Note 4 Loans, Leases and Allowance" of the "Notes to Condensed Consolidated Financial Statements" in this report. Other Assets . Other assets decreased $511,000, or 2.1%, to $24.3 million at March 31, 2024 from $24.8 million at December 31, 2023, primarily due to standard amortization of prepaid assets. Deposits. Total deposits increased $28.5 million, or 2.7%, to $1.1 billion at March 31, 2024 from December 31, 2023. The increase in deposits primarily was due to an increase in brokered time deposits of $22.5 million and other time deposits of $11.1 million, partially offset by a decrease in demand deposit accounts of $3.9 million. Brokered deposits totaled $291.3 million, or 27.2% of total deposits, at March 31, 2024, compared to $268.8 million, or 25.8% of total deposits, at December 31, 2023. At March 31, 2024, noninterest-bearing deposits totaled $108.8 million, or 10.2% of total deposits, compared to $114.4 million or 11.0% of total deposits at December 31, 2023. As of March 31, 2024, approximately $206.9 million of our deposit portfolio, or 19.3% of total deposits, excluding collateralized public deposits, was uninsured. The uninsured amounts are estimated based on the methodologies and assumptions used for First Bank Richmond's regulatory reporting requirements. Borrowings. Total borrowings, consisting solely of FHLB advances, increased $2.0 million to $273.0 million at March 31, 2024, compared to $271.0 million at December 31, 2023, which together with the increase in deposits were used to fund loan growth. Stockholders’ Equity. Stockholders’ equity totaled $132.4 million at March 31, 2024, a decrease of $2.5 million, or 1.8%, from December 31, 2023. The decrease in stockholders' equity from year-end 2023 resulted from the repurchase of $1.1 million of Company common stock, an increase in Accumulated Other Comprehensive Loss ("AOCL") of $2.8 million, and the payment of $1.4 million in dividends to Company stockholders, partially offset by $2.4 million in net income. The increase in AOCL is primarily due to the decline in mark-to-market values associated with our available for sale investment securities portfolio. At December 31, 2023, the available for sale portfolio had a net unrealized loss of $54.5 million compared to a net unrealized loss of $58.1 million at March 31, 2024. The AOCL impact to equity, after tax affecting the unrealized loss, was $45.9 million at March 31, 2024 compared to $43.0 million at December 31, 2023. This decline in value from December 31, 2023 to March 31, 2024 was due to interest rate changes, not credit quality. The Company repurchased 92,613 shares of Company common stock at an average price of $11.58 per share for a total of $1.1 million during the first three months of 2024. The Company's equity to asset ratio was 8.90% at March 31, 2024. At March 31, 2024, the Bank's Tier 1 capital to total assets ratio was 10.67% and the Bank's capital was well in excess of all regulatory requirements. Comparison of Results of Operations for the Three Months Ended March 31, 2024 and 2023. General. Net income for the three months ended March 31, 2024 was $2.4 million, a $535,000 or 18.4% decrease from net income of $2.9 million for the three months ended March 31, 2023. Diluted earnings per share were $0.23 for the first quarter of 2024, compared to $0.27 diluted earnings per share for the first quarter of 2023. The decrease in net income was the result of a decrease in net interest income of $38,000, and an increase in noninterest expense of $696,000, partially offset by an increase in noninterest income of $32,000 and a decrease in the provision for income taxes of $180,000. Interest Income. Interest income increased $4.3 million, or 28.4%, to $19.5 million during the quarter ended March 31, 2024, compared to $15.2 million during the quarter ended March 31, 2023. Interest income on loans and leases increased $4.1 million, or 30.8%, to $17.3 million for the quarter ended March 31, 2024, from $13.2 million for the comparable quarter in 31 2023, due to an increase in the average balance of loans and leases of $141.4 million, and an increase of 77 basis points in the average yield earned on loans and leases. The average outstanding loan and lease balance was $1.1 billion for the quarter ended March 31, 2024, compared to $984.2 million for the quarter ended March 31, 2023. The average yield on loans and leases was 6.13% for the quarter ended March 31, 2024, compared to 5.36% for the comparable quarter in 2023. Interest income on investment securities, excluding FHLB stock, was unchanged from the comparable quarter in 2023. The average yield on investment securities, excluding FHLB stock, was 2.53% for the first quarter of 2024, compared to 2.44% for the first quarter of 2023. The average balance of investment securities, excluding FHLB stock, was $284.0 million for the quarter ended March 31, 2024, compared to $294.9 million for the quarter ended March 31, 2023. Dividends on FHLB stock increased $186,000, or 134.8%, during the quarter ended March 31, 2024, from the comparable quarter in 2023, resulting in an average yield on FHLB stock of 9.44% for the three months ended March 31, 2024, compared to 5.50% for the three months ended March 31, 2023. Interest income on cash and cash equivalents increased $73,000, or 112.4%, during the quarter ended March 31, 2024, from the comparable quarter in 2023, due to a 126 basis point increase in the average yield and a $4.3 million increase in the average balance of cash and cash equivalents. Interest Expense. Interest expense increased $4.4 million, or 81.8%, to $9.7 million for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023. Interest expense on deposits increased $3.0 million, or 75.5%, to $7.1 million for the quarter ended March 31, 2024, from the comparable quarter in 2023. The increase in interest expense on deposits primarily was attributable to a $44.3 million increase in the average balance of, and a 120 basis point increase in the average rate paid on interest-bearing deposits. The average rate paid on interest-bearing deposits was 2.99% for the quarter ended March 31, 2024, compared to 1.79% for the quarter ended March 31, 2023. The average balance of interest-bearing deposits was $945.2 million for the quarter ended March 31, 2024, compared to $900.9 million in the comparable quarter in 2023. Interest expense on FHLB borrowings increased $1.3 million, or 101.6%, to $2.6 million in the first quarter of 2024 compared to $1.3 million for the same quarter in 2023, primarily due to an increase in the average rate paid on FHLB borrowings. The average rate paid on FHLB borrowings was 3.77% for the quarter ended March 31, 2024, compared to 2.61% for the first quarter of 2023. The average balance of FHLB borrowings totaled $277.2 million during the quarter ended March 31, 2024, compared to $198.5 million for the quarter ended March 31, 2023. Net Interest Income. Net interest income before the provision for credit losses decreased $38,000, or 0.4%, to $9.8 million for the first quarter of 2024, compared to $9.9 million for the first quarter of 2023. This decrease was due to a 48 basis point decrease in the average interest rate spread, partially offset by a $138.4 million increase in average interest earning assets. Net interest margin (annualized) was 2.74% for the three months ended March 31, 2024, compared to 3.04% for the three months ended March 31, 2023. The decrease in net interest margin was primarily due to the rate paid on interest-bearing liabilities increasing faster than the yield on interest-earning assets. During the first half of 2023, in response to continuing elevated inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve System increased the target range for the federal funds rate by 100 basis points, to a range of 5.25% to 5.50%. While net interest income benefited from the repricing impact of the higher interest rate environment on earning asset yields, the benefits were offset by the higher cost of interest-bearing deposit accounts and borrowings, which tend to be shorter in duration than our assets and re-price or reset faster than assets. Average Balances, Interest and Average Yields/Cost. The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances have been calculated using daily balances. Non-accruing loans have been included in the table as loans carrying a zero yield. Loan fees are included in interest income on loans and are not material. 32 Three Months Ended March 31, 2024 2023 Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate (Dollars in thousands) Interest-earning assets: Loans and leases receivable $ 1,125,586 $ 17,251 6.13 % $ 984,202 $ 13,193 5.36 % Securities 284,002 1,796 2.53 % 294,947 1,796 2.44 % FHLB stock 13,730 324 9.44 % 10,038 138 5.50 % Cash and cash equivalents and other 13,848 139 4.02 % 9,565 66 2.76 % Total interest-earning assets 1,437,166 19,510 5.43 % 1,298,752 15,193 4.68 % Non-earning assets 42,052 44,264 Total assets 1,479,218 1,343,016 Interest-bearing liabilities: Savings and money market accounts 259,198 1,379 2.13 % 279,510 996 1.43 % Interest-bearing checking accounts 148,126 382 1.03 % 153,216 189 0.49 % Certificate accounts 537,894 5,304 3.94 % 468,220 2,842 2.43 % Borrowings 277,220 2,612 3.77 % 198,517 1,295 2.61 % Total interest-bearing liabilities 1,222,438 9,677 3.17 % 1,099,463 5,322 1.94 % Noninterest-bearing demand deposits 108,577 97,278 Other liabilities 14,676 14,004 Stockholders' equity 133,527 132,271 Total liabilities and stockholders' equity 1,479,218 1,343,016 Net interest income $ 9,833 $ 9,871 Net earning assets $ 214,728 $ 199,289 Net interest rate spread (1) 2.26 % 2.74 % Net interest margin (2) 2.74 % 3.04 % Average interest-earning assets to average interest-bearing liabilities 117.57 % 118.13 % _____________ (1) Annualized. Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. (2) Annualized. Net interest margin represents net interest income divided by average total interest-earning assets. Provision for Credit Losses. The provision for credit losses for the three months ended March 31, 2024 totaled $183,000, compared to $170,000 for the three months ended March 31, 2023, a $13,000 or 7.7% increase. Net charge-offs during the first quarter of 2024 were $324,000 compared to net recoveries of $78,000 in the first quarter of 2023. While we believe the steps we have taken and continue to take are necessary to effectively manage our portfolio, uncertainties relating to the level of our allowance for credit losses remain heightened as a result of continued concern about a potential recession due to inflation, stock market volatility, and overall geopolitical tensions. Noninterest Income. Noninterest income increased $32,000 or 2.9%, to $1.1 million for the quarter ended March 31, 2024, compared to the same quarter in 2023. The increase in noninterest income resulted primarily from an increase in other income and loan and lease servicing fees, partially offset by decreases in net gains on loan and lease sales and service charges on deposit accounts. Other income increased $66,000, or 26.3%, to $319,000 for the quarter ended March 31, 2024, compared to $253,000 for the comparable quarter in 2023 due to increased wealth management income. Loan and lease servicing fees increased $7,000, or 6.0%, for the quarter ended March 31, 2024 compared to the comparable quarter in 2023. Net gains on loan and lease sales decreased $36,000, or 23.3%, compared to the same quarter in 2023, due to decreased mortgage banking activity. Service fees on deposit accounts decreased $8,000, or 2.9%, in the first quarter of 2024 from the comparable quarter in 2023. 33 Noninterest Expense. Noninterest expense increased $696,000, or 9.5%, to $8.1 million for the three months ended March 31, 2024, from $7.4 million for the same period in 2023. Salaries and employee benefits increased $332,000, or 7.8%, to $4.6 million for the quarter ended March 31, 2024, from $4.2 million for the same quarter in 2023. The increase in salaries and benefits was primarily due to increased employee benefits expense. Data processing fees increased $70,000, or 8.4%, to $907,000 in the first quarter of 2024 compared to the same quarter of 2023, primarily due to increased software and core provider expenses. Deposit insurance expense increased $235,000, or 139.9%, from the comparable quarter in 2023 primarily due to a change in the asset and deposit mix. Income Tax Expense. The provision for income taxes decreased $180,000 during the three months ended March 31, 2024, compared to the same period in 2023, due to a lower level of pre-tax income. The effective tax rate for the first quarter of 2024 was 12.9% compared to 15.5% for the same quarter a year ago. The decrease in the effective tax rate was a result of the use of a captive insurance company, which allows the Company to assume more control over insurance risks and resulted in a more tax-efficient structure. Capital and Liquidity Capital. Shareholders' equity totaled $132.4 million at March 31, 2024 and $134.9 million at December 31, 2023. In addition to net income of $2.4 million, other sources of capital during the first quarter of 2024 included $154,000 related to the allocation of ESOP shares and $367,000 related to stock-based compensation. Uses of capital during the first three months of 2024 included $2.8 million in AOCL, $1.4 million of dividends paid on common stock, and $1.1 million of stock repurchases. The increase in the AOCL component of shareholders' equity was caused by changes to the unrealized gains and losses on available for sale securities. We paid a regular quarterly dividend of $0.14 per common share during the first quarter of 2024, and regular quarterly dividends of $0.14 per common share during 2023. We currently expect to continue our practice of paying regular quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment during 2024 at the current dividend rate of $0.14 per share, our average total dividend paid each quarter would be approximately $1.6 million based on the number of our currently outstanding shares at March 31, 2024. Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On June 6, 2023, the Company announced that the Board of Directors approved an amendment to the Company's existing stock repurchase program authorizing the purchase of up to 321,386 shares of the Company's issued and outstanding common stock in addition to the 827,554 shares remaining available for repurchase at that date under the existing program, and extending the stock repurchase program's expiration date to June 6, 2024, unless completed sooner. As of March 31, 2024, the Company had approximately 775,423 shares available for repurchase under its existing stock repurchase program. The repurchase program does not obligate the Company to purchase any particular number of shares. See Part II, Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds." Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets. Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, sales of fixed rate residential mortgage loans in the secondary market, and federal funds sold and resell agreements. Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions. 34 Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. Our liquid assets in the form of cash and cash equivalents and investments available for sale totaled $296.6 million at March 31, 2024. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2024 totaled $325.4 million. Historically, the Bank has been able to retain a significant amount of its deposits as they mature. As of March 31, 2024, we had approximately $8.1 million held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the FHLB. As of March 31, 2024, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $91.3 million. Furthermore, at March 31, 2024, we had approximately $145.1 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of March 31, 2024, management was not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities for the three months ended March 31, 2024 was $2.2 million, compared to $3.6 million provided by operating activities for the three months ended March 31, 2023. During the three months ended March 31, 2024, net cash used in investing activities was $30.2 million, which consisted primarily of a $31.7 million net change in loans receivable, compared to $27.9 million of cash used in investing activities for the three months ended March 31, 2023. Net cash provided by financing activities for the three months ended March 31, 2024 was $28.1 million, which was comprised primarily of a $28.5 million net change in deposits, compared to $25.7 million provided by financing activities during the three months ended March 31, 2023. Management believes the capital sources are adequate to meet all reasonably foreseeable short-term and long-term cash requirements and there has not been a material change in our liquidity and capital resources since the information disclosed in our 2023 Form 10-K other than set forth above. Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity. In addition to its own operating expenses, Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders and other general corporate expenses. Since Richmond Mutual Bancorporation is a holding company and does not conduct operations, its primary sources of liquidity are interest on investment securities purchased with proceeds from our initial public offering, dividends up-streamed from First Bank Richmond and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid to us by First Bank Richmond. At March 31, 2024, Richmond Mutual Bancorporation, on an unconsolidated basis, had $10.1 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. Regulatory Capital Requirements. First Bank Richmond is subject to minimum capital requirements imposed by the FDIC. The FDIC may require us to have additional capital above the specific regulatory levels if it believes we are subject to increased risk due to asset problems, high interest rate risk and other risks. At March 31, 2024, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status. 35 Actual Minimum for Capital Adequacy Purposes Categorized as "Well-Capitalized" Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of March 31, 2024 Total risk-based capital (to risk weighted assets) $ 177,662 14.1 % $ 100,494 8.0 % $ 125,617 10.0 % Tier 1 risk-based capital (to risk weighted assets) 161,942 12.9 75,370 6.0 100,494 8.0 Common equity tier 1 capital (to risk weighted assets) 161,942 12.9 56,528 4.5 81,651 6.5 Tier 1 leverage (core) capital (to adjusted tangible assets) 161,942 10.7 60,726 4.0 75,908 5.0 As of December 31, 2023 Total risk-based capital (to risk weighted assets) $ 174,938 14.1 % $ 99,247 8.0 % $ 124,059 10.0 % Tier 1 risk-based capital (to risk weighted assets) 159,409 12.8 74,435 6.0 99,247 8.0 Common equity tier 1 capital (to risk weighted assets) 159,409 12.8 55,826 4.5 80,638 6.5 Tier 1 leverage (core) capital (to adjusted tangible assets) 159,409 10.6 59,931 4.0 74,914 5.0 Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At March 31, 2024, the Bank’s CET1 capital exceeded the required capital conservation buffer. For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve Board expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2024, it would have exceeded all regulatory capital requirements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There has not been any material change in the market risk disclosures contained in our 2023 Form 10-K.